Canopy to Grow Outdoor Cannabis

Bottom Line: Canopy is basically admitting outdoor cannabis has a place in the market. They can’t risk letting craft growers go to market with a $0.25/gram growing cost when they are stuck above $1.00. We think outdoor supply is viable for flower and extract quality cannabis and the number of producers applying for outdoor licences will only grow.

Current Production Costs per Gram

Source: SEDAR, Grizzle Estimates

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The Power of Medical Cannabis as a Lobbying Tool

Bottom Line: This article about Peru demonstrates the power of medical cannabis to change public opinion on cannabis as a whole. Even if recreational cannabis legalization is slow to roll out across the globe, medical cannabis legalization looks to be picking up speed, especially in South America, opening up new markets to publicly traded cannabis companies.
cannabis / marijuana supply / greenhouses - mj
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Thailand Opens First Medical Cannabis Clinic

Bottom Line: We have been surprised by how quickly Thailand is moving forward with loosening cannabis restrictions. It will still take years for the medical market to become a major source of cannabis demand, but Thailand is setting an example the rest of Asia could follow. mj
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New Study Finds CBD has Antibacterial Properties

Bottom Line: The more medical benefits that are discovered for CBD, the larger the ultimate size of the market for CBD-based medicine. CBD’s true potential just keeps on growing compared to THC which is largely prized as a recreational consumer product.
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Does Israel have a Chance to become a Global Cannabis Player?

Bottom Line: Israel may be a thought leader in cannabis cultivation and research, but unless domestic companies can raise enough money to compete on equal footing with North American competitors, Israeli companies are likely to become only marginal players in the global cannabis industry. 
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Cannabis is the Fastest Growing Job Category in America

Bottom Line: As the number of employees and the amount of tax revenue generated by the cannabis market grows, the industry’s lobbying power will increase. This lobbying power will likely lead to even faster regulatory change than what we are seeing today.

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Weekly Marijuana Stock Performance

Global pot stocks had their second week of positive performance in a row, up another 1.2%. With news breaking this weekend that trade talks will continue with China, we could be looking at a third straight week of positive results for cannabis stocks.

From the peak in March, cannabis stocks are down 20%, but still 27% above the lows in December 2018. U.S. stocks outperformed Canadian peers, rising 1.5%. Once stocks rebound, we expect U.S. stocks to outperform Canadian names the rest of the year with better regulatory catalysts and growth prospects. MSOs are up 13% year to date while Canadian growers are up 27%, but this trend should reverse as we move through the year.

The overall marijuana index outperformed the S&P and the TSX by 1.5% and 2.1% respectively.

Source: New Cannabis Ventures

Market Outlook

Stocks will remain seasonally weak as we go into the fall, but U.S. stocks have the benefit of some big regulatory catalysts potentially on the horizon this year.

Canadian LPs are still stuck in a stagnating legal market, making it hard to show the revenue growth investors are expecting. LPs are showing zero growth in 2019 and even with the 2020 rollout of edibles, vapes, and topicals growth is unlikely to exceed 150% in 2020. U.S. operators in comparison are growing revenue 150%-300% in 2019 and at similar rates or better in 2020.

Longer term, with the Canadian market legalized, we expect retail and wholesale price compression from a legal oversupply by the second half of 2019. Falling cannabis prices will pressure producer stocks later in 2019 or early 2020. After a shakeout, the remaining stocks will be better positioned as long-term buying opportunities.

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International